• Motivation: Understanding growth

• Analysis: Examining how growth has evolved over centuries

• Conclusions: Why it matters

Financial news outlets keep tabs on the economy, often times focusing on local highs and lows. For example, The Guardian reported:

Meanwhile the BBC reported that the International Monetary Fund warned of slowing growth relative to the time of the 2008 recession.

Conventional investment advice states that one should focus on the longer term – invest money and let it grow as the economy keeps on growing. This is the upward gravity of the economy.

Is the financial news about growth actually newsworthy?

Furthermore, is all growth the same?

Let's take a look at a millennium of economic trends made available by the Bank of England. The data set contains centuries worth of data for available measures such as export and import volume, GDP, among other measures.

At first, this seems like a novelty, but it provides an opportunity to understand if all growth is the same.

UK GDP relative to a statistical trend(a) and dozens of annual recessions.

We focus on export trade data for England that is available from 1286 AD to 2016 AD.

To provide context, the data starts nearly halfway through the the House of Plantagenet, then spans dozens of English monarchs – through highs and lows of English history.

Over the \(n=731\), we see a steep increase in export growth towards the tail end of the industrial revolution (exports in Billions of chained 2013 British Pounds). Export slowed during the two World Wars, then continued on a steep growth path with occassional dips (e.g. 2008 recession).

While the export volumes have grown, the year-to-year changes can be quite volatile. In fact, 36% of the time, exports have fallen. Thus, while upward growth is the prevailing direction, it drops in growth are common.

Over time, the number of negative growth years per 20 years have fallen. Occassionally, there have been "bad" times, but overall improvement in stability.

We can use a ML technique known as Multi-Adaptive Regression Splines (MARS) to identify pivotal dates when growth changed. MARS quantifies the growth trend along stretches of time – hence Splines.

In the graph below, the MAR algorithm found five pivotal dates – 1818, 1948, 1968, 1993, and 2008.

For the first 500 years of the sample, growth was relatively flat.

From around 1818 onwards – around the industrial revolution – trade growth booms, adding 270 Million Pound Sterling per year.

From 1948 onwards – immediately after the Second World War – export growth continues to accellerate by an additional +1558 Million Pounds per year.

From 1968 onwards – a pivotal period around the world, exports continued to accelerate.

Trade agreements in the 1990's helped open more borders for trade. Technological innovation rapidly expanded during this time as well.

Export growth slowed significant after the 2008 recession.

While there has been significant progress in exports, it has experienced a relative slowdown in recent memory.